Reverse Mortgage Borrower Age Analysis

We just got back from the NRMLA Irvine Roadshow and as always, heard some very interesting ideas and discussions about the industry’s current opportunities and challenges. One of the most interesting points we heard came from John Nixon at Bank of America, discussing an analysis he had done of borrower age.

Many of us who have been in the industry for a while have watched average age drop from 77 a decade ago, to 74 five years ago and roughly 72 last year. What has been masked by that “average” (or mean for the mathematically precise amongst us) is that the number of borrowers at each age has changed dramatically. John mentioned that in the past few months, 62 year olds were the most common among his borrowers, which frankly shocked many folks in the audience.

We did an analysis of our own once we got back to our office and what we found suggests that Nixon’s comment is indicative of the industry as a whole rather than just at BofA, even if the industry’s peak age was 63 in 2009 rather than Nixon’s 62. (To be fair, John may be looking at loans we won’t see for a few months due to the timelines associated with loan endorsement.) The chart below show the percentage of borrowers (youngest borrower) in each year at each age.

As you can see, there has indeed been a dramatic shift toward younger borrowers in the past few years, and particularly in the most recent year. Whereas in 2000 there were more borrowers age 76 than any other age, that figure has shifted downward much more dramatically than the average age: 74 in 2003 and 71 in 2006 to 63 in 2009.

So what does this mean for the industry? Well, it suggests that a common refrain of baby boomers being much more likely to use reverse mortgages than the WWII generation and those before is coming true. At the very least, baby boomers seem to be less put off by recent changes to the product and industry that have dropped overall industry volume by -39% in the first six months of 2010.

This could be from higher expectations of living standards in the baby boomer generation, lower retirement savings preparation (and lower pension availability) or a greater receptivity to debt. We simply don’t know from the data we’re analyzing today.

But it did bring up some other interesting thoughts about fixed vs. ARM HECMs, payment plan types, and borrower gender that we’ll explore further in next week’s edition. In the meantime, let us know what you think this shift in borrower age might mean for the industry in comments below, or email us here.